JONATHAN COHN NOVEMBER 18, 2010
[Cross-posted on The Reality-Based Community]
I haven’t run the numbers carefully, but the back of my envelope tells me that tripling the Federal alcohol tax–still leaving it below Korean War levels in inflation-adjusted terms–would bring in on the order of $15 billion a year in net revenue, after adjusting for the (entirely desirable) reduction in volume.
As Phil Cook points out, moderate taxes on drinking–tripling would put the federal tax at about 30 cents a drink–have almost all of their impact on drinking by heavy drinkers; if you’re having the proverbial “two beers,” tripling the tax adds a negligible 40 cents to your tab. But if you’re soaking heavily, the bill starts to mount.
Teenagers, who on average have less disposable income than adults, would feel the pinch disproportionately; since drinking by teenagers is especially bad for their health, and they’re especially likely to act violently or wreck their cars when drunk, I’d call that a feature, not a bug.
Tripling the alcohol tax would, in addition to the revenue it brought in, reduce violent crime and auto fatalities by something like 5% each: that’s about 800 fewer murders, 10,000 fewer rapes, and 1700 people not killed on the highways. The total impact on health is harder to compute, but heavy drinking kills about 100,000 people a year; if tripling the tax, which would raise the price by about 20%, led to a 10% reduction in volume, that would certainly show up in morbidity and mortality statistics, and in health-care costs.
And yet alcohol taxation never even came up in drafting health-care reform; there was talk of taxing soft drinks, but not beer. And the Simpson-Bowles plan is so focused on inflicting pain (on the non-rich) that it ignores an opportunity to raise revenue in a way that prevents pain.
Most taxation has an over-burden in the form of distorting economic activity. But raising alcohol taxes actually moves us in the direction of economic efficiency. Even ignoring the costs alcohol imposes on the people who drink too much of it and on their families, the external costs of heavy drinking–costs on various public budgets plus losses to individuals as a result of drinking people outside their families – are several times as high as the taxes collected on it. So even in purely free-market terms, alcohol is currently grossly under-taxed; in effect, the rest of us get to subsidize the brewers and their best customers through our health insurance bills, our auto-insurance bills, and our police budgets.
If you’re a pessimist, the current level of alcohol taxation is an outrage. If you’re an optimist, it’s an opportunity for a free lunch. If you’re a “deficit hawk,” you can’t even see it, as you scan the horizon for people to hurt. The Very Serious People really ought to restrict their S&M proclivities to their bedrooms.